Latin Finance - October 2008 - 38

brazilian agriculture Flipping Crops by Ben Miller his will be our showroom,” explains Carlos Aguiar, CFO of developer BrasilAgro, indicating a five hectare parcel of land sitting on a 40 hectare plot of barren land in the northeastern state of Piauí. “Interested buyers can see how we’ve developed it and supported it with infrastructure.” The Cremaq farm in Baixa Grande Ribeiro is one of the eight large swathes of raw land the company has bought across Brazil with proceeds from its 2006 IPO. BrasilAgro’s plan is to bring in roads, water, electricity, and other necessary farming infrastructure. It will then divide land and plant soy, sugar cane or other crops. The individual pieces can either be developed, sold or leased to interested farmers, depending on whether land values or crop prices are more attractive, he says. “It’s like in commercial real estate when you transform a class C building to a class A building,” says Axel Hinsch, CEO of Calyx Agro – a similar venture launched by Louis Dreyfus Commodities in May – describing the transformation of cattle pasture or raw terrain into betteryielding land. “You create a vehicle that allows investors to participate in the South American land play.” Land appreciation in Brazil has become a more sophisticated game as the country’s economy grows and food prices grind higher. The country’s vast tracts of undeveloped land have long lured foreign and domestic investors, but most of the attention has been restricted to surf and sand. Further inland, the lush, fertile cerrado region has long been the domain of family-owned farms. Companies that already farm are drawn to the diversification offered by investing in land appreciation and planting several different crops. Others may be tempted by “ T Brazil’s farming firms are applying the tourism/residential model to agricultural development. They are caught in the crosshairs of fundraising limits and competition. exposure to sugar and ethanol. Diniz estimates the venture will target around $500 million and says a second fundraising will happen within two years. The fund arose when Cosan announced it would enter the state of Goiás for a buildout of nine mills. The company subsequently saw an appreciation in surrounding lands, and thought that it might be able to take advantage of that. Radar’s name comes from the idea that the venture will be on the lookout for the next up-and-coming tracts of land throughout Brazil whose value is likely to rise, monitoring volumes of agricultural and environmental data. Like BrasilAgro, Radar will develop the land and lease it to agribusiness companies, including Cosan itself, or sell if the price is right. This is a new angle for the grower, and not without critics. “For a company that has always stated that acquisition of land implies a low return on capital invested, we believe this is a curious change of tack,” says Itaú Securities in a research note. “Even though we understand that Cosan wishes to benefit from the land appreciation that usually follows a sugar greenfield project, we believe the company could use this money in more appealing ways.” Elsewhere, global agriculture powerhouse Louis Dreyfus Commodities, which is already involved in Brazilian ethanol, raised about $200 million from private investors including AIG and other private investors for the Calyx Agro venture. It plans to buy, develop and Land on the Radar: Diniz the fact that the global credit crunch repels them from other kinds of real estate projects. Blips of Value In September, sugar and ethanol producer Cosan unleashed a $185 million real estate venture called Projeto Radar. The grower is using $150 million raised from private investors, along with $35 million of its own cash, to buy new plots of land. Cosan, which has operating control over the venture, is well-positioned to take advantage of its knowledge and experience with land to invest, says CFO Paulo Diniz. Radar will acquire unproductive land and develop it with sugar cane, soy and other crops in an attempt to hedge Cosan’s 38 LATINFINANCE October 2008
Latin Finance - October 2008

Table of Contents for the Digital Edition of Latin Finance - October 2008
